Theme 3: Business behaviour & the labour market Flashcards
3.1 Business growth
What is the Public Sector?
The Public Sector is comprised of organisations that are owned & operated by the government & exist to provide services for its citizens.
3.1 Business growth
What is the Private Sector?
The Private Sector is part of the economy that is run by individuals & companies & is not state controlled.
3.1 Business growth
What are Private Limited Companies (ltd)?
A business that is owned by its shareholders, run by directors (friends & family) & where the liability of shareholders for the debts of the company is limited.
3.1 Business growth
What are Public Limited Companies (plc)?
A company whose shares are traded on a stock exchange & can be brought & sold by the general public.
Public companies are strictly regulated, & are required by law to publish their complete & true financial position so that investors can determine the true worth of its stock/ shares.
3.1 Business growth
What are Profit Organisations?
A business or other organisation whose primary goal is making money (a profit).
3.1 Business growth
What are Non-Profit Organisations?
Non profit organisation focuses on a goal such as helping the community & is concerned with money only as much as necessary to keep the organisation operating. Not for profit.
3.1 Business growth
How are firms made?
- demerger
- recession
- economic climate (boom)
- level of entrepreneurial talent
- technological development
- government assistance/ policy
3.1 Business growth
Why do firms remain small?
- Benefit from Niche Market/ local monopoly
- lack of economies of scale
- lack of finance for expansion
- lack of demand
- heavy government regulation
3.1 Business growth
Why do businesses grow?
- more profits
- increased market share
- benefit from economies of scale
- gain monopoly power/ market power
- to increase pay & status of managers
- job security for the managers
3.1 Business growth
What is the principal agent problem?
In some firms, there is separation of ownership & control:
- Shareholders are not usually involved in the day to day running of the company. This is left to workers & managers.
- However, the managers often want expansion in order to secure their job, while the owners want profit maximisation. This creates a conflict of interest.
- Thus means there is a separation of ownership & control, which can be referred to as the principle agent problem. (Profit Satisfying)
3.1.2 Business growth
What is internal/ organic growth
involves the firms increasing its output & labour force, opening new offices & factories & taking out bank loans.
3.1.2 Business growth
What is external/ inorganic growth
includes mergers & takeovers
3.1.2 Business growth
What are strategies used to achieve internal growth?
- developing new product ranges
- launching existing products directly into new international markets (e.g. exporting)
- opening new business locations — wither in the domestic market or overseas
- investing in additional production capacity or new technology to allow increased output & sales volumes.
3.1.2 Business growth
What are the advantages of internal growth?
-
less expensive
- mergers & takeovers can be extremely expensive in contrast to organic growth
-
less risk
- majority of mergers/ takeovers end up failing
-
maintaining existing management & culture
- there could be conflicts between business cultures & management styles when merging
-
the ability to plan for & effectively control growth
- organic growth can be planned for unlike inorganic growth
3.1.2 Business growth
What are the disadvantages of internal growth?
-
time consuming
- takes time to see results
- requires significant investment of time & resources before generating revenue
-
limited resources
- e.g. financial resources, human capital, or technological capabilities
- slow response to market changes
-
opportunity costs
- may require diverting resources away from other potential opportunities
- e.g. investments in research & development
3.1.2 Business growth
What is horizontal integration?
When 2 firms in the same industry & at the same stage of production process merge.
e.g. Morrison merging with Safeway (now Morrison)
e.g. Fiat Chrysler Automobiles & Peugeot PSA Group (now Stellantis)
3.1.2 Business growth
What is the advantage of horizontal integration?
- increased market share
- economies of scale
- reduced competition
3.1.2 Business growth
What is the disadvantage of horizontal integration?
- integration challenges - merging operations, cultures, & systems from different companies can be complex & costly
- antitrust concerns - by reducing competition in the market, leading to monopoly practices, higher prices & decreased consumer choice
3.1.2 Business growth
What is forward vertical integration?
Merger with a firm at the next stage of production
3.1.2 Business growth
What is backward vertical integration?
Merger with a ferm at the previous stage of production.
3.1.2 Business growth
What is the advantage of backward vertical integration?
- assured supplies in terms of timing & quality
- reduced costs of supply
3.1.2 Business growth
What is the disadvantage of backward vertical integration?
- lack of expertise
- loss of specialalisation - company diversifies into activities outside its core - leads to decreased efficiency & innovation
3.1.2 Business growth
What is conglomeration/ diversification?
When firms that are involved in unrelated bsuinesses areas merge.
3.1.2 Business growth
What is the advantage of conglomeration?
- spreads the risk - reduces dependence on any single market
- widens brand awareness
- opportunities for growth - enables expansion of revenue streams & potentially increase shareholder value
